Fidelity California Municipal Income Fund

PORTFOLIO MANAGER Q&A | AS OF FEBRUARY 28, 2021

Fidelity? California Municipal Income Fund

Key Takeaways

? For the fiscal year ending February 28, 2021, the fund's Retail Class

shares gained 0.18%, roughly in line, net of fees, with the 0.60% advance of the Bloomberg Barclays California Enhanced Municipal Bond Index. The fund performed about in line with its Lipper peer group average.

? The past 12 months, the co-portfolio managers focused on longer-

term objectives and sought to generate attractive tax-exempt income and a competitive risk-adjusted return.

? Versus the state index, the fund's duration (interest rate) positioning

contributed this period.

? The fund's holdings cumulatively produced more income than the

state index, which also helped relative performance.

? In terms of sector allocation, smaller-than-index exposure to California

state general obligation bonds boosted the fund's result versus the state index.

? In contrast, an overweighting in certain airport bonds detracted for the

12 months, as did differences in the way fund holdings and index components were priced.

? As of February 28, the co-portfolio managers are optimistic about

municipal credit quality and the potential for lower-quality investmentgrade munis to outperform, but also see the potential for rising interest rates to weigh on muni prices.

? On March 1, 2020, Michael Maka assumed co-management

responsibilities for the fund. He succeeded Kevin Ramundo, who retired from Fidelity on June 30, 2020, after more than 20 years with the firm.

Not FDIC Insured ? May Lose Value ? No Bank Guarantee

MARKET RECAP

Tax-exempt municipal bonds posted a modest gain for the 12 months ending February 28, 2021, overcoming volatility related to economic and credit fears caused by the coronavirus pandemic. The Bloomberg Barclays Municipal Bond Index rose 1.06% for the period. Munis declined sharply in March 2020, as the spread of COVID-19 raised the prospect of a broad economic slowdown that presented financial challenges for certain muni issuers. For example, revenue bonds used to finance airport projects were pressured by a reduction in air travel. Also, bonds issued by hospitals received scrutiny due to uncertain reimbursement for coronavirus-related treatment and the halt of elective procedures. State and local government tax revenue was impacted by the delay in the income-tax filing date and the collapse in revenue from sales taxes, activity taxes and fees. The U.S. Federal Reserve responded to the risk of economic contraction and credit-market dysfunction by lowering the fed funds rate, purchasing taxable bonds and launching lending facilities, while Congress passed historic fiscal stimulus. This led to increased market liquidity and a return of new issuance in the primary market. Demand for municipal bonds, coupled with better-than-expected economic data, pressured muni yields and credit spreads through January 2021, before yields rose again in February amid hopes for a broad economic recovery and concern about rising inflation expectations.

PORTFOLIO MANAGER Q&A | AS OF FEBRUARY 28, 2021

Q&A

Michael Maka Co-Manager

Cormac Cullen Co-Manager

Elizah McLaughlin Co-Manager

Fund Facts

Trading Symbol: Start Date: Size (in millions):

FCTFX July 07, 1984 $2,253.18

Investment Approach

? Fidelity? California Municipal Income Fund is a singlestate-focused municipal bond strategy investing in general obligation and revenue-backed municipal securities across the yield curve.

? Our investment approach focuses on fundamental credit analysis, yield-curve positioning and an analysis of the structural characteristics of each security.

? The fund's interest rate sensitivity is targeted closely to that of its benchmark to prevent interest rate speculation from overwhelming research-based strategies that we deem to have a higher likelihood of success.

? We emphasize a total-return approach that seeks to generate a high level of tax-exempt income, consistent with the preservation of capital.

An interview with Co-Managers Michael Maka, Cormac Cullen and Elizah McLaughlin

Q: Michael, how did the fund perform for the fiscal year ending February 28, 2021

M.M. The fund's Retail Class shares gained 0.18% the past 12 months, roughly in line, net of fees, with the 0.60% advance of the Bloomberg Barclays California Enhanced Municipal Bond Index. The fund performed about in line with its Lipper peer group average.

Given the unprecedented volatility the muni market faced this period, we're gratified the fund roughly kept pace with the state index.

Q: Please tell us more about the volatile backdrop for municipal bonds.

M.M. It was a bumpy year for munis, which came under severe pressure early in 2020 as investors worried about the outbreak and spread of COVID-19 and the impact on states and local municipalities. Pandemic-induced shutdowns were particularly concerning, and the state index retreated through April.

Later, interest rate cuts, better-than-expected revenue collection for many muni issuers and support for munis via the U.S. Federal Reserve's municipal liquidity facility program prompted a rebound that extended into January 2021. But, like most other fixed-income categories, in February munis came under pressure amid growing concerns about the potential for higher inflation and an uptick in interest rates. The state index returned -1.80% in February alone.

Against this unusually volatile backdrop, Cormac, Elizah and I attempted to generate attractive tax-exempt income and a competitive risk-adjusted total return, including both price appreciation and income. Following our investment strategy and process, we did this with an eye toward carefully managing risk exposure through close collaboration with our team of portfolio managers, credit and quantitative research analysts, and traders.

Q: What notably contributed

M.M. We gained some ground from our duration (interest rate) positioning. The fund's duration was modestly longer than that of the state index in the early months of the period. This helped the fund benefit more fully than the state index

2 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF FEBRUARY 28, 2021

as municipal bond yields fell and bond prices rose throughout roughly the first half of the period.

The portfolio's duration positioning reflected where we identified value among bonds we believed had the potential to outperform the broader market in the longer term. We overweighted bonds with longer durations to take advantage of what our research suggested were mispriced securities, and underweighted shorter-term securities we felt were overvalued. Our choices were designed to take advantage of expected changes to the yield curve and the anomalies that existed along the maturity spectrum due to supply-anddemand imbalance.

Q: What else contributed

M.M. The fund produced more income than the state index, which helped our relative result. Since municipal bond total returns consist of income and price changes, having more income helped. Incremental income can be derived from a variety of sources. Lower-quality investment-grade munis, for example, generally produce more income than higherquality securities. That's because investors demand more income for taking on more credit risk. Structural features of bonds, such as embedded calls and prepayments, also can be sources of incremental income. In seeking a high level of current income, exempt from federal and state tax, we also focus on preservation of capital. We carefully evaluate each holding, drawing on our team of portfolio managers, credit and quantitative research analysts, and traders, to balance the risk and reward of each bond we consider for investment.

Q: Were there any sector-related factors that influenced the fund this period

M.M. Having smaller-than-index exposure to general obligation bonds (GOs) issued by the state of California helped relative performance for the year. An underweighting in this segment stemmed from our view that they were expensive at the outset, and therefore didn't offer as much upside as some other sectors. Underweighting these statebacked bonds hurt early in the period, when they outpaced the index, bolstered by strong demand from investors seeking relative safety in higher-quality, tax-backed munis.

But California GOs lagged in the second half of the period, as the reopening of the state and national economy prompted investors to seek opportunities among revenuebacked sectors. As such, having less exposure than the index was helpful then and for the full 12 months.

In contrast, the fund's overweighting in certain airport bonds cost us some ground relative to the state index, given this sector's underperformance. Early in the period, the airport sector suffered a significant drop in passenger traffic due to the pandemic. In response, airport management teams decisively cut discretionary expenses and delayed capital

expenditures to preserve liquidity and minimize costs. From last summer though the end of February, airport bonds staged a strong recovery, although their prices generally didn't return to pre-pandemic highs. Therefore, our overweighting in the segment crimped our performance versus the index.

Q: What else detracted

M.M. Fund holdings are priced by a third-party pricing service and validated daily by Fidelity Management & Research's (FMR) fair-value processes. Securities in the state index, however, are priced by the index provider. These two approaches employ somewhat different methodologies in estimating the prices of municipal securities, most of which trade infrequently. We estimate that these pricing differences detracted from relative performance.

Q: Team, what's your outlook for munis

C.C. As of February 28, we're optimistic about municipal credit, largely based on widespread distribution of COVID-19 vaccines, which began in late 2020, and the prospect for additional federal aid to municipal issuers. If passed, President Joe Biden's economic stimulus plan would provide a large infusion of aid to states, cities, school districts and public transportation systems. If we don't see any new market shocks, we would expect spreads to remain at lower levels, as they have tended to do following past periods of spread tightening. In a low-spread environment, we would expect to see outperformance among lower-rated investment-grade securities (rated A and BBB) and higheryielding sectors as investors seek sources of yield. As always, we will continue to closely monitor the securities held in the portfolio, while carefully and routinely measuring the risk/reward profile of each.

M.M. We expect to maintain our discipline by keeping the fund's duration close to that of the state index. Interest rates are historically low, and we see many reasons why they could stay depressed, including high unemployment. Still, we see interest rate risk as asymmetric, which is to say we think rates are more likely to rise than fall. While we can't rule out further interest rate volatility, which would put pressure on munis in coming months, we believe they could benefit from favorable supply-and-demand conditions. Potential moves to raise taxes on higher earners at the state and federal levels could fuel additional demand for munis.

E.M. Lastly, Cormac, Michael and I are grateful to shareholders for their continued support, and for our entire team for showing resilience, nimbleness and perseverance in a very challenging period.

C.C. The strength of the economy and the direction of the municipal market depends largely on the path of the coronavirus. Forecasts from various market participants reflect a wide range of views about the course ahead.

3 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF FEBRUARY 28, 2021

Michael Maka on the economic and credit outlook for California:

"Our view is that California's credit quality remains strong as of February 28, thanks to brisk revenue growth, the state's strong liquidity position and structural reform that has put California's pension funds on a more sustainable long-term path. "In response to the COVID-19 pandemic, the state budgeted a roughly 15% decline in general fund revenue for the current fiscal year, which ends on June 30, 2021. That's roughly on par with the revenue decline the state experienced during the Great Recession in 2008?09. "However, upper-income taxpayers have fared relatively well amid the pandemic-induced economic downturn. As a result, general fund revenue collected by the state from August 2020 through February 2021 has actually increased by roughly 18%, putting it more than 30% ahead of forecast. "Because of this better-than-expected revenue, the state ended February with total operating liquidity of about $52 billion, including its rainy day fund and money the state could borrow. Stated another way, this is about 33% of projected current fiscal year expenditures ? an indication the state is enjoying its strongest liquidity position in decades. "Furthermore, these results don't even account for the fact that the country's third COVID-19 stimulus package, which is expected to passed into law in March, would provide the state of California with $26 billion in unrestricted aid, which is roughly 17% of annual general fund expenditures. "In recent years, the state has enacted important structural reform that puts its pension funds on a more sustainable long-term path. While California's fixed pension costs are slightly higher than some of the highest-quality states, we believe it is manageable, given the state's history of brisk revenue growth."

4 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF FEBRUARY 28, 2021

MUNICIPAL-SECTOR DIVERSIFICATION

Sector

Portfolio Weight Index Weight

Relative Weight

Relative Change From Six Months

Ago

Transportation

24.25%

11.02%

13.23%

-0.62%

Local Obligations

19.88%

22.83%

-2.95%

-1.29%

Special Tax

9.66%

4.52%

5.14%

-0.38%

Health Care

9.55%

6.99%

2.56%

-1.86%

Higher Education

7.24%

7.17%

0.07%

1.17%

State Obligations

5.66%

21.69%

-16.03%

0.73%

Electric & Gas

5.26%

4.78%

0.48%

0.33%

Pre-Refunded

4.78%

8.48%

-3.70%

-1.97%

Water & Sewer

4.10%

9.51%

-5.41%

0.07%

Lease/Other

2.35%

0.55%

1.80%

-0.25%

Corporate-Backed

1.96%

1.35%

0.61%

0.25%

Tobacco

1.00%

0.63%

0.37%

0.12%

Housing

0.86%

0.47%

0.39%

-0.02%

Cash & Net Other Assets

3.45%

0.01%

3.44%

3.72%

Futures, Options & Swaps

0.00%

0.00%

0.00%

0.00%

Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number.

WEIGHTED AVERAGE MATURITY

Six Months Ago

Years

5.9

5.9

This is a weighted average of all maturities held in the fund.

DURATION

Years

Six Months Ago

5.7

5.8

5 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

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